In the light of repeated rejections of the Hall (1978) version of life-cycle permanent income hypothesis and other empirical puzzles, the habit formation hypothesis has increased in popularity since the 1980s. However, existing formulations of habit persistence do not always perform well empirically. This paper pursues two objectives: (1) to outline the habit persistence hypothesis, and (ii) to review thetheory of addiction with a focus on issues of relevance to the theory of consumption.
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Length: 39 pages Date of creation: 1998 Date of revision: Handle: RePEc:mlb:wpaper:635
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Find related papers by JEL classification: E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment D1 - Microeconomics - - Household Behavior D9 - Microeconomics - - Intertemporal Choice and Growth
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